And of course the inevitable... What happens when a less expensive product is introduced into the market with similar or superior attributes? Margin Compression! We analyzed three big Wall Street banks, starting with the "Riskiest Bank on the Street" (time permitting, reference our hard hitting, prescient research from early 2008).

You will get to touch, play with and trade value via UltraCoin. Below is a screenshot of UltraCoin running on a Mac. I will also be taking applications for large scale beta testers and entities who wish to have customized value trading solutions created for them.

This is an exercise to arrive at valuation of three of the well-known Bitcoin applications that have recently been in news for funding from investors. Unlike high-level valuations assigned to these companies we analyzed revenues in much deeper detail, segregating value drivers and revenue streams and projecting them for the foreseeable future. This thus has enabled a more granular valuation than the high-level valuation that we see in the news for these companies in their recent funding rounds.

Valuation Case 1- BITPAY

BITPAY revenue plan is based on monthly subscription model wherein the company charges $30, $300 and custom negotiated rates that are not published, under different subscription plans. Currently, Bitpay claims ~30,000 subscribers.

For the purpose of calculating revenue from each plan, total subscribers (30,000) have been segregated under each plan based on their probability of occurrence (and put a nominal fee for ad hoc, a la carte and custom services on the higher ends of the range). Multiplying probable subscribers with subscription fee resulted in total revenue for the company.

Table 1- Revenue Forecast, US$

Subscription Plans

2014F

2015F

2016F

Plan 1

10,260,000

11,850,300

13,310,257

Plan 2

4,320,000

4,944,240

5,501,950

Plan 3

10,260,000

11,634,840

12,826,248

Plan 4

5,400,000

6,066,900

6,625,055

Total Revenue

30,240,000

34,496,280

38,263,510

As per the news for funding in Bitpay, its valuation is estimated at $160 million. If we apply multiple at which Coinbase and Circle are estimated to have been funded recently (using average revenue multiple of Coinbase and Circle), the valuation based on 2015 and 2016 revenues is as shown below:

Table 2- Relative valuation

Particulars

2015F

2016F

Revenue ($)

34,496,280

38,263,510

Multiple Comparable- Coinbase and Circle

29.7x

25.3x

Valuation (US$mn)

1,023.47

968.13

Now, those of you who pay attention are likely to query, "Looks interesting... A billion dollar company within two years, but why is the valuation actually droppingin the 3rd year?". Well, this brings back to the article "Margin Compression Is Coming in the Payment Processing Space As $100 Million Pours Into Startups". You see, Bitpay and its contemporaries are growing like gangbusters (~6% to 10% per month!), but they are selling service with relatively low barriers to entry, and a lot of capital and competition climbing over the bow.

If I am correct, then Bitpay (as well as contemporary start-up competitor Circle and Coinbase, in addition to more entrenched competitions Master Card, Visa, American Express and PayPal) will offer plain vanilla payment processing at negative margins in an attempt have it serve as a loss leader to rope merchants (etc.) into high margin, better defensible products and services. Cue...

Yesterday, I did a radio interview with Benzinga. In it I busted myths about Apple, Bitcoin and Coins in general (ABCs). Listen to the interview below and the info sheets afterwards and let me know if you knew this stuff was possible with today's tech - and Apple!

Yesterday, I did a radio interview with Benzinga. In it I busted myths about Apple, Bitcoin and Coins in general (ABCs). Listen to the interview below and the info sheets afterwards and let me know if you knew this stuff was possible with today's tech - and Apple!

After an interesting discussion with those in my laboratory, I've decided to apply the forensic analysis team from BoomBustBlog to the privately funded companies in the Bitcoin space. See my post from yesterday for much of the reason why.

As you can see, PayPal has already imbued its service with much of the attributes that are being offered by the Bitcoin payment processors. They also have a material advantage as of right now, a massive installed base.

I also cannot emphasize enough how damaging the all too necessary customer service option is to margins. You see, the problem is most service companies don't put enough into customer service and handholding of the customer. From an optimal perspective, this should actually be part of the marketing and sales process, but it's often either non-existent or implemented as an after thought after enough customers start bitching and complaining, or worse yet (and likely most often the case) leaving!

As a company with mature management, it appears as if PayPal is trying to head this off at the pass as it attempts to change consumer behavior and prod them into adopting its new electronic currency payment system...

An interesting departure from the per transaction/fee model, Bitpay implemented a subscription system which benefits those customers who perform a large quantity of relatively small transactions moreso than those who process large orders.

I calculate Bitpay's most recent $30 million series A round to have been at around 9.2x sales, valuing the company at $160 million. This is a guestimate, of course, since I do not have access to internal numbers.

Oct 30, 2013

Circle has not publicly launched yet but promises to bring a new level of simplicity and user-friendliness to the bitcoin payment ecosystem, concentrating more on a banking paradigm then the technical bent that bitcoin is known to represent. This is all you need ot know about the Circle business model as it relates to this discussion of impending margin compression...

Free=Margin Compression!

Let's see how this plays out for customers. The most lucrative segments for this industry is the SME (small and medium business enterprises) who process anywhere between 10 and 1,000 transactions per month. Why? Because there are simply more SMEs than they are big companies in the world. Let's see what the two biggest bitcoin processors look like when stacked up against PayPal's Mass Pay product for the SME market...

Of course, the Bitcoin transactions are likely a loss leader for additional, value added services for many companies in the not too distant future. As a matter of fact, I feel that the payment space will quickly become commoditized by Bitcoin technology - forcing these companies and many more (I'm talking about you Mastercard, Visa and Western Union) to innovate and offer significantly and materially better value for the buck.

Imagine what this competitive landscape will look like when Mastercard, Visa, American Express, Discover and Western Union jump into the fray. Of course, before that a much greater portion of the VC and private equity community will wake up and realize the opportunity in Bitcoin to pour more cash into it than sugar into a Bubble gum machine (emphasis on "Bubble"). The key is to get in early, and get in right. But how does one do that and where will this tale of uber margin compression end?

Well, the research report from which this info is being prepared will be offered to accredited and instituional investors starting next week, at least those who have an interest in UltraCoin.

My next article on this topic will explicitly illustrate how UltraCoin can assist ALL players (that's right, including PayPal, Bitpay, Circle, Coinbase, Mastercard, Visa, American Express, Discover and Western Union) as well as their direct customers, in climbing up both the food chain and the value proposition ladder - thus rapidly repairing the margin compression damage they are about to bring upon thier business models.

Coindesk asks "Do Patent Filings from eBay and Western Union Pose a Threat to Bitcoin?" I feel the question is in and of itself missing the point. To explain this fully, I have to share a little bit about myself, particularly my weaknesses. I'm the type of person who is very knowledgeable about his strengths and his weaknesses, but sometimes I don't see my strength for what it is, and that is tantamount to a weakness in a highly competitive environment.

Case in point, in discussing whether or not competing patents have been filed for smart contract transacion processes by those who seek to be in my space with my contract engineer (a very skilled software architect and IP attorney), I displayed what I considered a healthy level of paranoid concern. I found it hard to believe that no one bothered to patent the most innovative, disruptive and groundbreaking aspect of this new crop of digital currencies - the ability to program them. As those who follow me know, I've spent a lot of resources developing, designing, refining and patenting advanced smart contracts (see How Reggie Middleton's Start-up Patented The Future of Global Finance!). I actually found it highly unlikely that no one had come up with this idea before me. Matt (my contracts engineer) said, "You know, it actually takes an uncanny amount of vision to have seen the scope of this stuff and act upon it, not to mention to have done so 6 months ago. Not many people are like you." Right then and there, it hit me. People really do not see things the way I do!

Most know me from my prescient calls in banking, finance, real estate and tech (see Who is Reggie Middleton?). I've demonstrated a knack for seeing future trends and determining when things (such as valuations and opportunities) are out of whack. With that being said, the big media interest in Bitcoin combined with the increasing VC interest in Bitcoin companies (reference BitPay Gets $30 Million in Venture Capital Funding) is a very good thing for the industry, but also illustrates shortsigtedness in both the investment community and many practitioners.

The problem with the processors...

When bitcoin is as easy as PayPal to use then it will be on the path to mass adoption, but to assume that’s the most lucrative path to take in bitcoin company private equity investment begs the wrong question. Here’s the strategic landscape as I see it.

Bitcoin is very inexpensive to use as a transfer agent. A transaction may be safely sent without fees if these conditions are met (this is excerpted directly from the Bitcoin Wiki, verbatum):

It is smaller than 1,000 bytes.

All outputs are 0.01 BTC or larger.

Its priority is large enough

Otherwise, the reference implementation will round up the transaction size to the next thousand bytes and add a fee of 0.1 mBTC (0.0001 BTC) per thousand bytes. Note that a typical transaction is 500 bytes, so the typical transaction fee for low-priority transactions is 0.1 mBTC (0.0001 BTC), regardless of the number of bitcoins sent.

Bitcoin as of 5/18/2014 is $444.74m, thus the fee for this transaction is roughly 4 cents, if not outright free. If a processor is transferring $10,000 on behalf of a customer, whether at one time or 100 times throughout the course of a month, the processor’s fee cost would range from $0 to $4, while the processor would likely charge (as of the date of this writing, $0 to $100). The traditional processors such a Visa or Paypal would charge hundreds (as in up to 50x more!) for the same deal!

That 25x markup on the high end is significant (even for the Bitcoin companies), and ripe for disintermediation itself (that's right, the disintermediaing agents are poised for disintermediaion). Particularly once the UX of Bitcoin evolves, as email and web browsing did, and users realize how easy and cheap it is to jump onto the blockchain and do this stuff themselves.

Even assuming users don’t follow the historical model of those that left proprietary walled gardens (think AOL) and jumped directly into the open World Wide Web themselves, there are no material barriers to entry to enter into the processing business other than potentially a money transmitter license. The only material barrier, hence the business opportunity, is that Bitcoin is cumbersome to use. As the UI/UX polish increases and the amount of competitors in the space increase, the lower the prices charged - hence the margins - will be.

With such low barriers to entry and potentially humongous markups to exploit, what do you think happens next? The wild, untamed hordes of competitors swoop down upon the masses, and we have a concerted race to zero, and likely negative margin as competitors attempt to make processing a loss leader to draw users into the folds of richer, higher margin services!!!

The race to marginal zero, then negative, does not make a strong business plan. So, what do these companies such as BitPay, Coinbase, etc. do once that point is reached (rather quickly)? They look to value added (high margin) services on top of their low margin, utility-like payment infrastructures.

Enter smart contracts and the true use of programmability in the crypto-currencies. The easiest and the likely first implementation of such will be multi-sig operations which allow multiple parties to share funds without having to worry about trusting and single party in a transaction. Our ZeroTrust Letters of Credit (patent pending) is just such a product. It allows for multiple parties to tranfer payment for simple and complex transactions contingent upon the mutual agreed upon successful execution of said transactions. This is done without the parties having to:

Know each other

Trust each other

Have any form of proximity to each other;

and can be done using micropayments all the way up to multi-million dollar macro payments. The barriers to this business are much higher. For one, it takes more than just programming code. You have to be able to congeal the legal logic of the conventional law in equity contract into code. You have to be able to congeal the business logic into code, and you have to be able to implement it into the blockchain or whatever other underlying transmission mechanism you choose to utilize.

Once the race to negative zero is in full swing, a few of the wiser companies will wake-up and say "Hey, there has to be a better way, and we think we found it!". It is at that point Reggie Middleton's UltraCoin products and assets will shine. It is not hard to foresee that the entrenched companies (Visa, Mastercard, PayPal, Western Union) may enter a bidding war with the new comers armed with material VC warchests (much more than we're seeing with $30 million investments of today - all over the guys who had the foresight to see the next evolutionary step in plain vanilla payments - smart transactions and self-executing digital contracts and transactions.

We're actively looking for financial and intellectual capital. If you, as an accredited investor, are looking for an opportunity in the higher end of the digital currency space, I think we should talk. In addition, if you are a higher level Java/C++ developer willing to take risk, we need to talk. I'm available at reggie at ultra-coin.com.

At elite universities, fewer MBA and finance candidates are willing to even consider a life of missed weddings, busted romances and deep-into-the-night deal negotiations. The percentage of Harvard Business School graduates entering investment banking, sales or trading dropped to 5 percent last year from 12 percent in 2006, while those entering technology almost tripled to 18 percent during that period.

At the University of Pennsylvania’s Wharton School, the percentage of MBAs entering investment banking dropped to 13.3 percent last year from 26 percent in 2006, while those entering tech more than doubled to 11.1 percent.

Those of you who have been following finance from the Wall Street/Bay Street/Canary Wharf perspective realize that this is a cyclical occurence. Basically, Wall Street falls out of favor with MBA whiz kids every ten years of so. But!!!! This time is different. This time around, Wall Street, et. al. is about to succumb to the destructive forces of technology that transformed, revolutionized, disintermediated, gutted and absolutely reinvigorated the media, news and retail industries.

That's right! The Internet Paradigm Shift has finally hit Global Finance... and it's going to hurt, and hurt a lot!

As many know, the I've poured my time and resources into a start-up by the name of UltraCoin. Many have been clamoring for white papers and details, and I have been purposely secretive about such. The reason? I needed to entrency protection from my competition - the money center banks. How did I do this? Well...

I patented the future of Global Finance!

This video illustrates my presentation to both the mainstream and alternative media as I start my capital raising rounds from venture capitalists and strategic investos alike. Check it out!

We're looking for financial and human capital as we prepare to expand globally. Financial capital is self-explanatory. On the human capital side...

We're seeking a full stack contract developer. Must be proficient in: Java or C#; git, bzr, or similar. Must have a solid understanding of: race conditions and how to avoid them; scalable concurrency and data integrity architectural concepts (replication, sharding, etc.); software development processes and best practices. Proficiency in some CRUD technology (*SQL, NoSQL, etc.) as well as and some scripting language (Javascript, PHP, Python, etc.) is highly preferred. Experience with the Bitcoin protocol is a huge plus. Your first interview is to e-mail your resume along with a response to this challenge: https://gist.github.com/mbogosian/28815ae606c663c983c3

Must be willing to sign an NDA. You should be knowledgeable and competent, but we prefer grit to genius. Prima donnas need not apply.

]]>reggie@boombustblog.com (Reggie Middleton)BoomBustBlogSat, 10 May 2014 17:02:38 +0000T-Mobile Threatens Deadbeat Carriers With The Death Of The American Wireless Business Modelhttp://boombustblog.com/blog/item/9215-t-mobile-threatens-deadbeat-carriers-with-the-death-of-the-american-wireless-business-model
http://boombustblog.com/blog/item/9215-t-mobile-threatens-deadbeat-carriers-with-the-death-of-the-american-wireless-business-model

There are 4 major national carriers in the US, basically two big ones two smaller ones. The smallest of the 4, T-Mobile, consistently get beat up - losing out on the right to subsidize the iPhone at a loss (like AT&T used to and Sprint still does) and basically losing subscribers. Then they decided to do something about it. They said, "Hey, let's stop being deadbeats!". By changing their pricing plans and eliminating subsidies and instead selling pure access to their virtual pipes (like a carrier is supposed to) combined with actual "real" financing of the hardware (at competitive rates, nonetheless) they essentially committed DeadBeat Carrier Blashphemy. The only issue was, it worked, to the chagrin of the competition - reference:

As a matter of fact, in Deadbeat Carriers Compete, aka #MarginCompression!!! (exactly ONE year ago), I prognosticated that T-Mobile will kick off a pricing war that will bring about the greatest savings to the wireless consumer it has seen since the birth of the industry. I even went so far as to include and online interactive spreadsheet for readers to analyze their own savings - or potential therefore.

Carriers are engaging in a price war in order to win market share, with T-Mobile's "uncarrier" plans really shaking things up. T-Mobile has been aggressively trying to grab market shares by eliminating consumer "pain points," specifically the issue of locking customers into two-year contracts. T-Mobile has been rolling out programs to entice customers to switch their carrier, with the latest three offerings announced in April, where the company under the "Simple Starter," "Tablet Freedom" and "Overage Freedom" - eliminated all domestic overage charges for consumers, even those on legacy plans. T-Mobile had announced in March 2013 its "Simple Choice" plan that offered no annual service contract and low out-of-pocket costs on smartphones.

The company must be doing something right, given its impressive first-quarter subscriber growth of 2.4 million total net customer additions for the three months, making it the "fastest growing wireless company in America," it said in its earnings release last week.

Both Verizon and AT&T are combating T-Mobile by touting payment agreements for customersthat require little to no down payment, more data, and fewer service charges when it comes to multiple phones or being able to pay for the device itself in installments as appealing features to switch over. (Check with your carrier to see the latest offers available.)

That said, it's easy for consumers to get confused by the growing array of options, but it's clear that for once, the consumer is winning since costs associated with smartphones are becoming more transparent and understandable. "This trend, combined with a wider selection of fully functional mid-range and low-end devices, should help win over the undecided consumers but also will shift the growth away from the high end," Kantar stated.

Between the first quarter of 2013 and the first quarter of this year, spending on smartphones on contracts dropped to $93 from $119, while pre-pay spending dropped to $148 from $187, Kantar said.

Now, the mainstream media and sell side analytical community is just a year (or two) late in realizing this, but better late then never, eh? Also from the Street.com we have Why T-Mobile Is Beating AT&T and Verizon:

T-Mobile US shares were surging 8.1% to $31.67 following news that larger rival Sprint was prepping plans to propose a buyout of the carrier as its impressive subscriber growth for the first-quarter shows that consumers are digging its offerings.

T-Mobile, known for its "Un-carrier" initiatives, has been aggressively trying to grab market share by eliminating consumer "pain points," specifically the issue of locking customers into two-year contracts like Verizon , Sprint and AT&T . T-Mobile has been rolling out programs to entice customers to switch their carrier, with the latest three offerings announced in April, where the company under the "Simple Starter," "Tablet Freedom" and "Overage Freedom" - eliminated all domestic overage charges for consumers, even those on legacy plans. T-Mobile had announced in March 2013 its "Simple Choice" plan that offered no annual service contract and low out-of-pocket costs on smartphones.

The company must be doing something right, given its impressive first-quarter subscriber growth.

T-Mobile reported first-quarter earnings results earlier this morning in which it boasted 2.4 million total net customer additions for the three months, which included more than 1.8 million branded net customer additions, making it the "fastest growing wireless company in America," it said in its earnings release. T-Mobile ended the quarter with 49.1 million customers, it said. On the other hand, the company experienced "record low" churn of 1.5%, down 20 basis points from the fourth quarter and down 40 basis points from the year-earlier period.

... T-Mobile actually posted a net loss of $151 million, or 19 cents a share, for the three months ending March 31, compared to a profit of $106 million, or 20 cents a share in the year-earlier quarter, according to its quarterly filing. However, revenue at the Bellevue, Wash.-based company rose 47% to $6.87 billion year over year.

... Adjusted EBITDA came in at $1.1 billion, down 12.2% sequentially, which it attributed to increased equipment sales due to the "significant acceleration in customer growth and the success of its Un-carrier 4.0 - Contract Freedom offer." Adjusted EBITDA margin was 20% compared to 24% in the fourth quarter of 2013.<story_page_break>

... T-Mobile expects branded postpaid net additions between 2.8 million and 3.3 million for the full year and adjusted EBITDA to be in the range of $5.6 to $5.8 billion, it said.

Althouth T-Mobile may be hard pressed to replicate that pop in revenues and subscribers, I expect the trend to continue until and unless the other carriers match it in both pricing model and marketing efforts. I doubt they will do this until it is too late. They should, but they won't. That is unfortunate for thier investors for, as T-Mobile is the smallest of the top 4 national carriers, this is Verizon/ATT/Sprint's (in that order) fight to lose!

In addition, as revenue and subscriber rate increases subside, EBITDA may level off as the switching incentive costs amortize. This is not even considering what may happen if an entrepenurial and disruptive force (ex. Google Loon offshoots) appears on the scene.

For those who didn't get the memo, I've been toiling away in my lab creating the world's first "investment bank, securities brokerage, asset manager, money transfer agent" in-a-box that allows users to perform all of theses functions themselves on a ZeroTrust (meaning you don't need to trust or even know the other side of the transaction), peer to peer basis.

Well, it appears as quite a few of the big boys and heavy weights have a similar idea and are in the market to make acquisitions. Wouldn't it be ironic if UltraCoin (my iconic venture) was acquired before it gets its seed round???!!!

[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process.

The authorisation from Ireland’s central bank to become an “e-money” institution would allow Facebook to issue units of stored monetary value that represent a claim against the company. This e-money would be valid throughout Europe via a process known as “passporting”.

Facebook has also discussed potential partnerships with at least three London start-ups that offer international money transfer services online and via smartphones: TransferWise, Moni Technologies and Azimo, according to three people involved in the discussions.

In the case of Azimo, Facebook offered to pay the company $10m to recruit one of its co-founders as a director of business development, according to people familiar with the situation.

Yes, this space is heating up. It makes me feel good! You see, the Visas, Mastercards, Western Unions and Paypals of the world make a lot of money selling a relatively cheap services for a relatively large amount. BUT!!!! The Goldmans and JP Morgans of the world make much more money by selling very deep margined products and services for a lot more while paying a lot less to create them. It is here where UltraCoin has staked its ground. As the competition amongst the big boys starts to heat up, they will want to crawl up the food chain and I already have the ladder built!

“Facebook wants to become a utility in the developing world, and remittances are a gateway drug to financial inclusion,” said a person familiar with the company’s strategy. Facebook recently passed 100m users in India, which is its largest national market outside the United States.

I've created an infrastructure that significantly expands these investment markets by allowing anyone, anywhere with an Internet connection (of almost any speed) to participate in almost any of the world's public financial markets. Taking the subject matter of this article into consideration, we can short Samsung on its own home exchange of Korea for nearly any amount, from $10 million US down to $8 ...

These same young investors can even hedge thier currency translation risk with a Korean Won US dollar forex pair, for 55 basis points!

Armed with the information from simply reading my blog posts, your brothers from Haiti or Botstwana can now take short positions in these (margin)doomed hardware manufacturers - taking the other side of the trade from these big name financial institutions that don't seem to read my writings.

These are young brothers from Haiti who sat through an UltraCoin lesson...

Back to the FT article:

It also comes as other internet groups – in particular, China’s Tencent and Alibaba – race to turn their sites into mobile payment platforms.

Google has reiterated its commitment to expanding its mobile payments and wallet products, which have yet to be widely adopted by consumers. It is registered in the UK to issue electronic money, in a process similar to the authorisation which Facebook is seeking in Ireland.

In 2013, the company [Facebook] facilitated $2.1bn worth of transactions, almost exclusively from games, according to documents filed with the Securities and Exchange Commission.

Vodafone has acquired an e-money licence for the phone company to operate financial services in Europe.

“It’s great news that non-banks are challenging the traditional banking monopoly,” said Simon Deane-Johns, a UK-based lawyer and European payments expert at law firm Keystone Law.

It will be interesting to see how the potential bidding contest will form as these companies compete to build the next generation financial infrastructure. I believe that I am very well positioned, as excerpted from yesterday's missive:

These are interesting times indeed. For those who are not aware of how far I've come in transforming the way value is traded across geo-political and socio-economic lines, I urge you to view the following video and/or peruse the embedded presentation below it.

In order to deal with such pressures, Samsung appears to be pricing the Galaxy S5 lower than its predecessor S4, according to Kang, who has collected pre-order prices for the device from around the world.

"It reflects the trend of smart phone commoditization – Samsung will have to learn to create profits at a lower price point," Kang said.

Earlier this week, Samsung said it's on track to post its second straight quarter of profit decline, as slowing smartphone sales growth continued to weigh on earnings.

The South Korean tech giant estimated that its January-March operating profit fell by 4.3 percent to 8.4 trillion won, slightly below an average forecast of 8.5 trillion won, according to Reuters.

I've created an infrastructure that significantly expands these investment markets by allowing anyone, anywhere with an Internet connection (of almost any speed) to participate in almost any of the world's public financial markets. Taking the subject matter of this article into consideration, we can short Samsung on its own home exchange of Korea for nearly any amount, from $10 million US down to $8 ...

These same young investors can even hedge thier currency translation risk with a Korean Won US dollar forex pair, for 55 basis points!

Armed with the information from simply reading my blog posts, your brothers from Haiti or Botstwana can now take short positions in these (margin)doomed hardware manufacturers - taking the other side of the trade from these big name financial institutions that don't seem to read my writings.

These are kids that I taught UltraCoin to during my trip to Haiti a couple of weeks ago. Before you assume, the kids are actually quite bright and adept at math, and yes - kdis can easily trade with UltraCoin. My kids have been doing it for months!

My UltraCoin project will nearly double the available potential investors able to profit from these markets. By making the ability to participate in multi-asset class prices moves bi-directionally (that's right, long and short) I will be increase the liquidity of said markets by almost 2 billion people, as per McKinsey:

2.5 billion adults, just over half of the world’s adult population, do not use formal financial services to save or borrow.

2.2 billion of the unserved adults live in Africa, Asia, Latin America, and the Middle East.

Of the 1.2 billion adults who use formal financial services in Africa, Asia, and the Middle East, at least two-thirds, a little more than 800 million, live on less than $5 per day (purchasing power parity adjusted).

Regulatory and policy environments, as well as the actions of individual financial services providers, affect usage levels in a way that is, to a large extent, independent of countries’ socioeconomic and demographic characteristics.

I just had the pleasure of meeting this young lady from Botswana who's trying to spearhead Bitcoin adoption in her country. I've made friends and I'm going to supply her with the means to have the whole country trading a whole variety (UltraCoin can trade more than 10,000 tickers - stocks, bonds, options, futures, indices) of financial assets very soon.

I'll leave it up to you to determine who'll win those trades. These are interesting times indeed. For those who are not aware of how far I've come in transforming the way value is traded across geo-political and socio-economic lines, I urge you to view the following video and/or peruse the embedded presentation below it.

Dec 10, 2012 - Last week I told the world that hardwarevendors are DEAD! At least the fat margin business modelhardware vendors (like those whose name rhymes with Snapple). ... Related BoomBustBlog Subscription-only Research:.

]]>reggie@boombustblog.com (Reggie Middleton)BoomBustBlogFri, 11 Apr 2014 10:25:41 +0000The Turkish Government Is About To Find Out Why Bitcoin Is Not A Bubble!!!http://boombustblog.com/blog/item/9211-the-turkish-government-is-about-to-find-out-why-bitcoin-is-not-a-bubble
http://boombustblog.com/blog/item/9211-the-turkish-government-is-about-to-find-out-why-bitcoin-is-not-a-bubble

The Turkish government has exercised its censorship chops in banning Twitter in an attempt to quell distribution of anti-government recordings, and in the process has materially popularized the service, to wit: Forbes - Streisand Effect Takes Hold As Turkey Bans Twitter

In an attempt to halt widespread allegations of corruption, Turkish prime minister Recep Tayyip Erdogan has shuttered Twitter – but so ineffectively that the number of tweets sent in the country has remained unaffected.

Last night, Erdogan announced that, following a court order, Twitter was now disabled in the country. “We’ll eradicate Twitter,” he said. “I don’t care what the international community says. Everyone will witness the power of the Turkish Republic.”

Leaked recordings shared on Twitter include one in which Erdogan allegedly instructs his son to dispose of cash [AP]

Turkish and global social media users have mocked moves by Turkey's government to restrict access to Twitter.

The hashtags #TwitterisblockedinTurkey and #Turkey blockedTwitter became the top trending topics globally on Friday, just hours after the Turkish government imposed the ban.

The number of tweets from Turkey reportedly rose by 138 percent as savvy Internet users, including the country's president Abdullah Gul, found it easy to circumvent the shutdown.

"The whole world is laughing at you #ErdoganBlockedTwitter," users tweeted, as dozens of images mocking the ban - including one showing Twitter birds covering Prime Minister Recep Tayyip Erdogan's head in droppings - were shared on the platform.

Another popular tweet shared a poster of the prime minister on a Barack Obama campaign poster with the message, "Yes, we ban".

Erdogan on Thursday night promised to "root out" and wipe out" the social media platform after users published claims of corruption against him.

Leaked recordings shared and linked on Twitter include one in which Erdogan allegedly instructs his son to dispose of large amounts of cash from a residence amid a police corruption probe.

One method of ridicule was to go around the the blocking if the Twitter domain name by using Google's DNS (Domain Name Server) services which allowed anxious and potential Twitter users to find the Twitter website through Google's machinations. So, what does the Turkish government do? They blocked Twitter at the IP level and then went so far as to bank Google's DNS. This means that Turkey is attempting to block out a portion of the Internet, to wit: Turkey Blocks Google DNS as Erdogan Defends Twitter Action

Now here comes a quick education for the old fogey-type folk that declare Bitcoin is a bubble, ponzi scheme currency with no intrinsic value. If you recall my many videos that declare the value of Bitcoin is in the protocol, and not the unit of account that everyone is calling a currency, then you may realize that the Bitcoin technology can literally take the Turkish government down.

(go to time market 1:10 in the video for the explanation)

Those that know the Bitcoin protocol well know that it is an ideal method of overcoming centralized control in regards to value transfer. Well, it's easily assumable that website data access is value transfer as well. If anybody in Turkey is reading this, then email me and I'll show you how to step around even Erdogan's Google DNS ban using the Bitcoin derivative known as Namecoin - A peer-to-peer, censorship resistant, alternative DNS root and data storage technology. Using that "tulip" technology with "no intrinsic value", Namecoin facilitates cryptographically secure decentralized name and data storage.

Now, we all know that Krugman and Roubini and all of the not so technologically inclined macro economists may not believe that Bitcoin, et. al. has any intrinsic value, but if somebody like me led a "Coin" revolt in Turkey, do you think Erdogan would believe the economists or me in regards to the intrinsic value of this technology.

If you think Namecoin can be disruptive to the status quo, you aint't seen nothin' yet. Wait until the launch of UltraCoin, when those little Haitain kids in shacks out trade the Goldman prop desk on that BTC/AU pair trade.

That's right, I'm teaching 3rd world children how to trade using cryptocurrency derivatives and plain old fashioned derivatives. I'm comfortable pitting them against the names that the developed world worships, as long as its using this new tech. Let's see how they fair...

I just love the smell of creative disruption in the air. These pics were taken after some training sessions in Port au Prince, Haiti this weekend.

On or about February 23rd, 2014, Mt. Gox (on of the larger bitcoin exchanges) collapsed. The MSM (mainstream media) had a field day...

I warned everybody that the fall of Mt. Gox was simply a poorly managed small business getting its just dues. To correlate the fortunes of Mt. Gox with the fortunes of the Bitcoin ecosystem is akin correlating the fortune of the World Wide Web with that of Pets.com or Alta Vista in the 1990s. Sounds silly doesn't it? Well, fast forward 3 weeks from the Gox'd experience and this is what we find... The week after the media frenzy regarding Mt. Gox started to fade, the price of BTC (bitcoins) started a dramatic phase of price stabilization. This apparent price stabilization was verified by the very dramatic drop in standard deviation.

If we drill down to the weeks in question, we find...

This price stabilization has occurred even before the wide scale adoption of UltraCoin.

"Dominic Wilson and Jose Ursua of the firm's markets research division are first up. They argue that Bitcoin fails to meet both basic criteria of a viable currency: while there remains an outside chance for widespread acceptance as a medium of exchange, as a stable source of value, it has so far failed. That undermines the premise that Bitcoin could serve as a way of short-circuiting exchange rates in inflation-prone countries."

But wait a minute! Goldman's business business is growing at a fraction of this pace, and actually negative in some areas. So, if Bitcoin as a currency and payment system is a failure, what the hell is Goldmam? Of course, Business Insider goes on to report...

For most users what matters is not the comparison with other currencies, but a comparison with the volatility of the currency that they hold (dollars in the US for instance) in terms of the things that they need to buy. The volatility of consumer prices (in dollars) has been even lower than FX rates, even if measured over a period including the 1970s. Put simply, if you hold cash today in most developed countries, you know within a few percentage points what you will be able to buy with it a day, a week or a year from now.

This is Bullshit! Say it to the more mathematically challenged, my bonus hungry friends. Let's run the math using theusinflationcalculator.com:

As you can see, if you measure things from the '70s as the esteemed, erstwhile Wall Street aficiaondo from Goldman recommended, then you would have less than 17% of your buying power left. Yes, bitcoin is volatile, but its volatility stems from the price going up and down, while the USD has primarily just went down. You know that saying about the frog in the slowly heated boiling pot of water, right?

In addition, both of the largest Bitcoin payment processors absorb the exchange rate volatility for their customers, or did the best of breed Goldman analysts somehow overlook this pertinent fact?

Wilson and Ursua include this graph showing volatility of Bitcoin versus the Argentine peso, the yen, the euro, the pound, and U.S. inflation. It's not even close.

But wait a minute! If the largest payment processors absorb the volatility and market risk of their customers, then Goldman must assuredly be referring to the currencies above from an investment perspective, no?

Yes! Bitcoin is truly volatile, indeed, but the guy at Goldman are cheating, hoping that the rest of us don't know our finance and/or basic common sense. You see, they are looking at just one side of the equation - the side that favors fiat currencies and disfavors bitcoin. You see, risk is the price of reward. For every reward you seek, you pay a price in risk. The goal, as a smart investor, is to pay little risk for much reward. Goldman is trying to make it appear as if you are paying nothing but risk for bitcoin and getting little reward in return. Let's see how that pans out when someone who knows what they're doing chimes in. From the BoomBustBlogresearch report Digital Currencies' Risks, Rewards & Returns - An Into Into Bitcoin Investing For Longer Term Horizons:

GS return on equity has declined substantially due to deleverage and is only marginally higher than its current cost of capital. With ROE down to c12% from c20% during pre-crisis levels, there is no way a stock with high beta as GS could justify adequate returns to cover the inherent risk. For GS to trade back at 200 it has to increase its leverage back to pre-crisis levels to assume ROE of 20%. And for that GS has to either increase its leverage back to 25x. With curbs on banks leverage this seems highly unlikely. Without any increase in leverage and ROE, the stock would only marginally cover returns to shareholders given that ROE is c12%. Even based on consensus estimates the stock should trade at about where it is trading right now, leaving no upside potential. Using BoomBustBlog estimates, the valuation drops considerably since we take into consideration a decrease in trading revenue or an increase in the cost of funding in combination with a limitation of leverage due to the impending global regulation coming down the pike.

Now that we see how hard it is to truly produce Alpha, I query thee... What do you think would happen if a financial maverick, an out of the box thinker who's different from all of those other guys, got a seed round of funding for the most disruptive product to hit the finance world since the printing press? What if that seed round was for $8 million dollars, with a preferred A series coming right behind it? What would such a cash flush company do, being one of the most cash flush Bitcoin companies in the world? Hmmmnnn!!!

Speakin' of Goldman Sachs...

I anticipate being in the market very soon for (I'm not thier yet, but hopefully very soon):

CTO - Chief Technology Officer

COO - Chief Opertating Officer

General Counsel

CMO - Chief Marketing Officer

CFO - Chief Financial Officer

As well as skilled Java and Blockchain developers.

Hit me via reggie at ultra-coin.com if you have an interest in coming on board.

With all of the brouhaha over Bitcoin and the downright irresponsible reporting by the mass media, I've decided to reveal the progress of my "UltraCoin: The Future of Money!!!" venture. What you see in the next few paragraphs should elucidate even the most blinded to the prospects and potential of the Bitcoin protocol and why I've always said that the price of the actual cryptocurrency is absolutely irrelevant (much as the price of AOL was highly irrelevant to the prospects of the Internet in 1993).

I know I said the MSM has simply butchered accurate coverage of Bitcoin, but this piece in Fortune Magazine was right on the money:

"[UltraCoin] is a shot directly across the bow of the financial industry. Still in early development, BTC Swap is planned to facilitate a variety of what Middleton calls "Zero-Trust Digital Contracts," which recreate financial functions in software code by matching offered and desired transactions between parties without the need for intermediary institutions. Because these contracts are automated, instantaneous, and executed with assets already represented in the Bitcoin blockchain, Middleton says they eliminate counterparty risk while also subtracting conventional banking and brokerage fees.

The most immediate function Middleton envisions for his system is for hedging bitcoin against existing national currencies. With bitcoin's valuation still showing huge volatility, Middleton claims the availability of distributed hedging will both ensure the value of bitcoin for individuals holding the asset and provide systemic stability. (Given persistent skepticism, there should be plenty of takers to short bitcoin against the dollar.) And the entire system relies on decentralization for its security and integrity: "My contracts are peer-to-peer," says Middleton. "If you hack my servers, there's nothing to get."

Find it hard to believe? Even children can do it...

So, how does this work? Well, let's start from the beginning.

The vast majority of the world does their spending out of a wallet like this, or using currency-like instruments such as these (both physical and digital) contained in the wallet. The problem is all of these devices are "dumb" and rely on central authority figures (government, servers, banks, etc.). So...

Along comes Bitcoin with its decentralized currency that solves many of these issues. Bitcoin is also kept in wallets, like these...

These Bitcoin wallets give you considerably more freedom with your money, sending it faster, cheaper and with more privacy than the conventional wallet above. Of course, the typical Bitcoin wallet hasn't even scratched the surface of what's possible with this new technology. As a matter of fact, the tech is so over-encompassing and transformative that the mass media and even much of the specialized media simply CANNOT wrap their minds around what's about to happen to the worlds of money, finance and investment!

I've taken a radical step with this tech that makes even the newest Bitcoin wallets look old hat in comparison. What makes UltraCoin different from everything else?

So, what is UltraCoin?

Unlike Bitcoin wallets, it allows you to literally take control of both your money and gain exposure to financial assets such as stocks, bonds, forex, options, futures, oil, gas, commodities and precious metals.

You can even design your own "smart contracts" directly within the wallet itself.

This stuff above is a pretty big difference from... this, eh?

And that's how we come round robin back to that first graphic with my kids trading currency exposures.

Of course, Wall Street is fearful. Why shouldn't they be? If the public realized the extent of the middleman markup they pack into otherwise low value-add services and product margin, there would be a mass revolt. When you create these products and services on a peer to peer basis, it's extremely hard to overcharge to the extent a recent MBA recipient with little to no real world experience can recieve 7 or 8 digit compensation. Don't believe me and my proclamations of fear? Witness the drivel that comes out of the the analyst's reports:

If you are or know of any of the above, hit me up with a link to your LinkedIn and/or Wikipedia profile via reggie AT ultra-coin.com. You can also join me to trade live Bitcoin and currency exposures at 40 Broad Street, Friday at 6 pm if you wish. Equities, Silver and Gold exposures will be available next week and possibly by Friday as well.

About two weeks ago I answered what was at the time one of the most amateurish reports coming out of the bit money center banks in some time in Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing. Well, it appears that there's a contest for the hypocritical hypothesis and Citibank intends to go for the gold, likely toppling JP Morgan's lead. In a nutshell, we have a gaggle of US based banks that have exhibited horrendous risk management, business judgement and trading/investment acumen nearly topple the global financial system, demand (as in ransom money) trillions of dollars of welfare (which they recieved and are still recieving) from the US taxpayer, and still pay out billions of dollars in bonuses and salaried compensation - all the while the US dollar is still safe and sound as the worlds deepest, most liquid currency market not to mention still being the world's reserve currency.

Now, a much, much, much smaller Bitcoin exchange fails after flashing obvious warning signs for months and does not require bailing out by the tax payer or the Federal Reserve (how can I emphasize how big a plus this is for Bitcoin), and bitcoin dips in price for a single evening - rebounding nigh immediately! Citibank and JP Morgan's incompetence threw the entire world into a near depression - and that's with globally collaborative ZIRP, trillion's of dollars of bailouts and the clandestive changing of accounting rules and the morphing if simple math to make it look like the insolvent were really not so.

Re: Mt. Gox failure - Would Mt. Gox still be in business today, like JPM and Citi if the Federal Reserve dropped rates to a negative level, FASB authorized the changing of accounting standards to minimize Gox's liabilities and no one at the exchange was held liable for what appeared to be outright fraud, as claimed by the SEC? would there be analysts in Mt. Gox writing silly papers overflowing with hypocritical hypothesis about how XYZ the dollar was dead because a US bank went bust? Probably!

I've worked hard to establish a strong reputation - not only in terms of competence but in terms of integrity. For those who don't know of me, you canview my media apearances and calls as well as my Wikipedia page. You see, my mommy and daddy raised me to appreciate both aspects of success - not only one. With that in mind I'd like to address the recent report from JP Morgan slamming Bitcoin. Just so most know my viewpoint, the typical Bitcoin enthusiast and entrepeneur is primarily technologist leaning, thus may or may not see all of the aspects of the financial side of this new... "thing". In addition, and because of that, the financial guys often get away with some outrageous bullshit that they'd never even try under different circumstances. Let's apply this perspective to JPM's latest FX strategic outlook report, "The Audacity of Bitcoin". I will refute this report, point by point, and in the process make the managing director whose name is on the report look downright ignorant and uneducated. This is not a personal attack or an attempt at sleight (hey, he may be a downright stand-up guy), I am simply calling it as I see it.

Before we get to the report though, I want to address the foolishness of following these "reports" from the big name brand money center banks.

Mainstream media entities such as the Wall Street Journal and Business Insider take the conflicted interest ridden drivel from these investment banks as actual legitimate analysis and actually base their reporting on it. That really gives me pause! Now on to addressing what Citibank claims as espoused through Business Insider, and I quote:

In a new note, Citi currency strategist — and the bank's defacto Bitcoin analyst — Steven Englander basically asks: What's the point of Bitcoin now?

But for Englander, the technical glitch that hit not only Gox but other exchanges "seems to have been known for years without the Bitcoin developers instituting a complete fix,"... "So one question is whether the decentralized structure, which is the attraction to many, makes it too cumbersome to enact essential fixes."

"Bitcoin transactions [were] thought to be impregnable and turned out not to be," said Englander. "Earlier security questions had centered around everything except the possibility that there might be a fraudulent transactions record. The imperviousness to fraud was one the big attractions of Bitcoin and the surprise exploitation of a known defect is a setback. Now it looks like just another payments system that has to worry about fraud."

Where am I to start with this? Long story short, this is plain old simple ignorance! Bitcoin is open source software. That is why you get it for free! It's not as if the core Bitcoin development team ran a company and Mt. Gox bought a commercial software package from them with a warranty and represenations. Mt. Gox relied on an open sourced code base and refused to both contribute back to the community and even keep abreast of what was going on in the community. The end result? A problem that was recognized and solved 3 years ago went unseen by Mt. Gox until they were bled of hundreds of million of dollars worth of bitcoin. JPM acts as if it is the open source communty's responsibility to instruct Mt. Gox on how to write and maintain software when in actuality it was Mt. Gox's responsibility to give back to and monitor the open source community!!! Notice how entities that were paying attention and playing by the open source communities rules were unscathed by this so-called "defect". If I say there is a hole in the ground and I send out a report that there is a hole in the ground, but you don't read that report and continue to walk until you fall into the hole - all the while knowing you gained access to the ground for free, are you going to blame the ground for being imperfect or yourself for ignoring the community that gave you free access when the warned you about the hole and even gave you instructions on how to avoid the hole?

"Bitcoin's market cap on paper by far exceeds that of the competition and that are many Bitcoin holders heavily invested in Bitcoin, so it has a first mover advantage. However as a store of value, its only value is reputational, and recent developments have shaken that reputation."

Go to 1:25 in this video for an answer to the statement above...

Business insider goes on to warn of the following risk: "That big banks themselves co-opt the still-relevant technological developments embedded in Bitcoin and junk all the bad parts". Actually, the banks will implement bad parts and junk all the good parts. You see, this is all relative. In general, what's good for you and me is generally bad for the banks, and vice versa. Why do Citibank and JP Morgan harp on the pitfalls of decentralization? It's because the banks are the guys with the centralized servers!!! If you eliminate the need for centralized servers you eliminate the need for banks!

Why harp on the dangers of peer to peer? Because bank branches will disappear in a heartbeat, as will centralized exchanges and the ability to pack in massive fees and charges unbenknownst to the client, the same fees and charges that fund those oh so many decimillionaire annual bonuses. It means a paycut for Wall Street and Wall Street is known to be vociferous in its attempts to avoid paycuts.

About two weeks ago I answered what was at the time one of the most amateurish reports coming out of the bit money center banks in some time in Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing. Well, it appears that there's a contest for the hypocritical hypothesis and Citibank intends to go for the gold, likely toppling JP Morgan's lead. In a nutshell, we have a gaggle of US based banks that have exhibited horrendous risk management, business judgement and trading/investment acumen nearly topple the global financial system, demand (as in ransom money) trillions of dollars of welfare (which they recieved and are still recieving) from the US taxpayer, and still pay out billions of dollars in bonuses and salaried compensation - all the while the US dollar is still safe and sound as the worlds deepest, most liquid currency market not to mention still being the world's reserve currency.

Now, a much, much, much smaller Bitcoin exchange fails after flashing obvious warning signs for months and does not require bailing out by the tax payer or the Federal Reserve (how can I emphasize how big a plus this is for Bitcoin), and bitcoin dips in price for a single evening - rebounding nigh immediately! Citibank and JP Morgan's incompetence through the entire world into a near depression - and that's with globally collaborative ZIRP, trillion's of dollars of bailouts and the clandestive changing of accounting rules and the morphing if simple math to make it look like the insolvent were really not so.

Re: Mt. Gox failure - Would Mt. Gox still be in business today, like JPM and Citi if the Federal Reserve dropped rates to a negative level, FASB authorized the changing of accounting standards to minimize Gox's liabilities and no one at the exchange was held liable for what appeared to be outright fraud, as claimed by the SEC? would there be analysts in Mt. Gox writing silly papers overflowing with hypocritical hypothesis about how XYZ the dollar was dead because a US bank went bust? Probably!

I've worked hard to establish a strong reputation - not only in terms of competence but in terms of integrity. For those who don't know of me, you canview my media apearances and calls as well as my Wikipedia page. You see, my mommy and daddy raised me to appreciate both aspects of success - not only one. With that in mind I'd like to address the recent report from JP Morgan slamming Bitcoin. Just so most know my viewpoint, the typical Bitcoin enthusiast and entrepeneur is primarily technologist leaning, thus may or may not see all of the aspects of the financial side of this new... "thing". In addition, and because of that, the financial guys often get away with some outrageous bullshit that they'd never even try under different circumstances. Let's apply this perspective to JPM's latest FX strategic outlook report, "The Audacity of Bitcoin". I will refute this report, point by point, and in the process make the managing director whose name is on the report look downright ignorant and uneducated. This is not a personal attack or an attempt at sleight (hey, he may be a downright stand-up guy), I am simply calling it as I see it.

Before we get to the report though, I want to address the foolishness of following these "reports" from the big name brand money center banks.

Mainstream media entities such as the Wall Street Journal and Business Insider take the conflicted interest ridden drivel from these investment banks as actual legitimate analysis and actually base their reporting on it. That really gives me pause! Now on to addressing what Citibank claims as espoused through Business Insider, and I quote:

In a new note, Citi currency strategist — and the bank's defacto Bitcoin analyst — Steven Englander basically asks: What's the point of Bitcoin now?

But for Englander, the technical glitch that hit not only Gox but other exchanges "seems to have been known for years without the Bitcoin developers instituting a complete fix,"... "So one question is whether the decentralized structure, which is the attraction to many, makes it too cumbersome to enact essential fixes."

"Bitcoin transactions [were] thought to be impregnable and turned out not to be," said Englander. "Earlier security questions had centered around everything except the possibility that there might be a fraudulent transactions record. The imperviousness to fraud was one the big attractions of Bitcoin and the surprise exploitation of a known defect is a setback. Now it looks like just another payments system that has to worry about fraud."

Where am I to start with this? Long story short, this is plain old simple ignorance! Bitcoin is open source software. That is why you get it for free! It's not as if the core Bitcoin development team ran a company and Mt. Gox bought a commercial software package from them with a warranty and represenations. Mt. Gox relied on an open sourced code base and refused to both contribute back to the community and even keep abreast of what was going on in the community. The end result? A problem that was recognized and solved 3 years ago went unseen by Mt. Gox until they were bled of hundreds of million of dollars worth of bitcoin. JPM acts as if it is the open source communty's responsibility to instruct Mt. Gox on how to write and maintain software when in actuality it was Mt. Gox's responsibility to give back to and monitor the open source community!!! Notice how entities that were paying attention and playing by the open source communities rules were unscathed by this so-called "defect". If I say there is a hole in the ground and I send out a report that there is a hole in the ground, but you don't read that report and continue to walk until you fall into the hole - all the while knowing you gained access to the ground for free, are you going to blame the ground for being imperfect or yourself for ignoring the community that gave you free access when the warned you about the hole and even gave you instructions on how to avoid the hole?

"Bitcoin's market cap on paper by far exceeds that of the competition and that are many Bitcoin holders heavily invested in Bitcoin, so it has a first mover advantage. However as a store of value, its only value is reputational, and recent developments have shaken that reputation."

Go to 1:25 in this video for an answer to the statement above...

Business insider goes on to warn of the following risk: "That big banks themselves co-opt the still-relevant technological developments embedded in Bitcoin and junk all the bad parts". Actually, the banks will implement bad parts and junk all the good parts. You see, this is all relative. In general, what's good for you and me is generally bad for the banks, and vice versa. Why do Citibank and JP Morgan harp on the pitfalls of decentralization? It's because the banks are the guys with the centralized servers!!! If you eliminate the need for centralized servers you eliminate the need for banks!

Why harp on the dangers of peer to peer? Because bank branches will disappear in a heartbeat, as will centralized exchanges and the ability to pack in massive fees and charges unbenknownst to the client, the same fees and charges that fund those oh so many decimillionaire annual bonuses. It means a paycut for Wall Street and Wall Street is known to be vociferous in its attempts to avoid paycuts.

About two weeks ago I answered what was at the time one of the most amateurish reports coming out of the bit money center banks in some time in Theres' Something Fishy In The House Of Morgan, Pt. 2: Bitcoin Fear, Envy & Loathing. Well, it appears that there's a contest for the hypocritical hypothesis and Citibank intends to go for the gold, likely toppling JP Morgan's lead. In a nutshell, we have a gaggle of US based banks that have exhibited horrendous risk management, business judgement and trading/investment acumen nearly topple the global financial system, demand (as in ransom money) trillions of dollars of welfare (which they recieved and are still recieving) from the US taxpayer, and still pay out billions of dollars in bonuses and salaried compensation - all the while the US dollar is still safe and sound as the worlds deepest, most liquid currency market not to mention still being the world's reserve currency.

Now, a much, much, much smaller Bitcoin exchange fails after flashing obvious warning signs for months and does not require bailing out by the tax payer or the Federal Reserve (how can I emphasize how big a plus this is for Bitcoin), and bitcoin dips in price for a single evening - rebounding nigh immediately! Citibank and JP Morgan's incompetence through the entire world into a near depression - and that's with globally collaborative ZIRP, trillion's of dollars of bailouts and the clandestive changing of accounting rules and the morphing if simple math to make it look like the insolvent were really not so.

Re: Mt. Gox failure - Would Mt. Gox still be in business today, like JPM and Citi if the Federal Reserve dropped rates to a negative level, FASB authorized the changing of accounting standards to minimize Gox's liabilities and no one at the exchange was held liable for what appeared to be outright fraud, as claimed by the SEC? would there be analysts in Mt. Gox writing silly papers overflowing with hypocritical hypothesis about how XYZ the dollar was dead because a US bank went bust? Probably!

I've worked hard to establish a strong reputation - not only in terms of competence but in terms of integrity. For those who don't know of me, you canview my media apearances and calls as well as my Wikipedia page. You see, my mommy and daddy raised me to appreciate both aspects of success - not only one. With that in mind I'd like to address the recent report from JP Morgan slamming Bitcoin. Just so most know my viewpoint, the typical Bitcoin enthusiast and entrepeneur is primarily technologist leaning, thus may or may not see all of the aspects of the financial side of this new... "thing". In addition, and because of that, the financial guys often get away with some outrageous bullshit that they'd never even try under different circumstances. Let's apply this perspective to JPM's latest FX strategic outlook report, "The Audacity of Bitcoin". I will refute this report, point by point, and in the process make the managing director whose name is on the report look downright ignorant and uneducated. This is not a personal attack or an attempt at sleight (hey, he may be a downright stand-up guy), I am simply calling it as I see it.

Before we get to the report though, I want to address the foolishness of following these "reports" from the big name brand money center banks.

Mainstream media entities such as the Wall Street Journal and Business Insider take the conflicted interest ridden drivel from these investment banks as actual legitimate analysis and actually base their reporting on it. That really gives me pause! Now on to addressing what Citibank claims as espoused through Business Insider, and I quote:

In a new note, Citi currency strategist — and the bank's defacto Bitcoin analyst — Steven Englander basically asks: What's the point of Bitcoin now?

But for Englander, the technical glitch that hit not only Gox but other exchanges "seems to have been known for years without the Bitcoin developers instituting a complete fix,"... "So one question is whether the decentralized structure, which is the attraction to many, makes it too cumbersome to enact essential fixes."

"Bitcoin transactions [were] thought to be impregnable and turned out not to be," said Englander. "Earlier security questions had centered around everything except the possibility that there might be a fraudulent transactions record. The imperviousness to fraud was one the big attractions of Bitcoin and the surprise exploitation of a known defect is a setback. Now it looks like just another payments system that has to worry about fraud."

Where am I to start with this? Long story short, this is plain old simple ignorance! Bitcoin is open source software. That is why you get it for free! It's not as if the core Bitcoin development team ran a company and Mt. Gox bought a commercial software package from them with a warranty and represenations. Mt. Gox relied on an open sourced code base and refused to both contribute back to the community and even keep abreast of what was going on in the community. The end result? A problem that was recognized and solved 3 years ago went unseen by Mt. Gox until they were bled of hundreds of million of dollars worth of bitcoin. JPM acts as if it is the open source communty's responsibility to instruct Mt. Gox on how to write and maintain software when in actuality it was Mt. Gox's responsibility to give back to and monitor the open source community!!! Notice how entities that were paying attention and playing by the open source communities rules were unscathed by this so-called "defect". If I say there is a hole in the ground and I send out a report that there is a hole in the ground, but you don't read that report and continue to walk until you fall into the hole - all the while knowing you gained access to the ground for free, are you going to blame the ground for being imperfect or yourself for ignoring the community that gave you free access when the warned you about the hole and even gave you instructions on how to avoid the hole?

"Bitcoin's market cap on paper by far exceeds that of the competition and that are many Bitcoin holders heavily invested in Bitcoin, so it has a first mover advantage. However as a store of value, its only value is reputational, and recent developments have shaken that reputation."

Go to 1:25 in this video for an answer to the statement above...

Business insider goes on to warn of the following risk: "That big banks themselves co-opt the still-relevant technological developments embedded in Bitcoin and junk all the bad parts". Actually, the banks will implement bad parts and junk all the good parts. You see, this is all relative. In general, what's good for you and me is generally bad for the banks, and vice versa. Why do Citibank and JP Morgan harp on the pitfalls of decentralization? It's because the banks are the guys with the centralized servers!!! If you eliminate the need for centralized servers you eliminate the need for banks!

Why harp on the dangers of peer to peer? Because bank branches will disappear in a heartbeat, as will centralized exchanges and the ability to pack in massive fees and charges unbenknownst to the client, the same fees and charges that fund those oh so many decimillionaire annual bonuses. It means a paycut for Wall Street and Wall Street is known to be vociferous in its attempts to avoid paycuts.

Now, there are a few people who may disagree with me. I can show you a bunch of videos that I made that support this assertion, or you can view this one below...

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And... here's the inevitable "I told you so's"...

I made it clear that those who lost roughly half of their capital at or near the IPO price simply forfeited those funds from not reading BoomBustBlog, and this situation was virtually guaranteed. I felt so strongly about it that I made much of my opinion available for free this time.

Here's where I broke it down on Capital Account

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I also happened to do the same on the Max Kesier show...

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I discussed Facebook on the Peter Schiff radio show, the Facebook excerpt is below...

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Additional Facebook analysis, valuation and commentary.

On Max Keiser, go to the 13:55 marker for more on Facebook...

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Double your money by shorting the Street's advice! Once Again!

How the Facebook story got started...

Facebook started its institutional investment life as a very popular, very well known company. Goldman took this story (private) stock and went bananas with it, as meticulously illustrated in the following blog posts:

No, Facebook is not stupid for paying $19B for Whatsapp! If they didn’t do it, Google would have!

No, contrary to popular pro-Facebook belief, Whatsapp is not a synergistic buy. Remember, Facebook already has a near identical application (Facebook Messenger) already used by probably hundreds of millions.

Thus, it is highly unlikely one can legitimately factor in the type of growth needed to justify the current Goldman $50B valuation - particularly when you consider that Facebook's growth is already slowing!

Well, let's see if I had a valid point now that we have clear and convincing historical evidence from which to base our analysis... (click any of these graphics to enlarge to print quality size)c

Facebook is a farce even with the froth taken off of the IPO price. Why? As gleaned fromInternet World Stats...

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These stats are from the 2011-2012 YEAR! Growth has likely slowed more since then! Here's a tidbit for those who don't subscribe that clearly illustrates... When it sounds too good to be true, it's probably not true!

As luck would have it, Whatsapp is the fastest growing company (in terms of active users) in the history of technology. Whatsapp also is the messaging market leader in nearly all major developing nations.

So, what Facebook is doing is buying user growth. It’s doing so because…

Not only can it not generate said user growth organically anymore, but

It is actually losing subscribers

How does Facebook remedy its growth problems? Well, it should be evident at this point, it’s buying the growth! Of course, this begs the question, does a growth company really have to purchase growth? This is a rhetoric question, which leads to this rather painful discovery (posed as a question): If Facebook is no longer a growth company, why doesn’t its valuation reflect that of a rollup instead of a growth company?

If Mr. or Mrs. Market Participant broaches this question, look out belowwwwwwwwww……

Cryptocurrencies have been on a tear over the last 2 years, both in terms of mindshare and returns. This is particularly true of the last year, in which Bitcoin (the de facto proxy for cryptocurrencies) has heaved from $13 to $950, making a pit stop at $1200 along the way. This 7,308% return looks to be outrageously delectable to many a speculator and has even caught the eye of an institutional fund or two. The problem is, and what many novice investors have a problem conceptualizing, that astute institutional “investment” funds actually have a problem dipping their toes in the wilding appreciative yet hyper-volatile world that is cryptocurrencies.

The reason is because “investment funds” as opposed to beta chasing “trading” or “hedge" funds seek a measured return on investment. The raw returns that you see spouted for Bitcoin and the various alt.coins are actually not what the smart institutional money is looking for.

Put another way, you tend to get what you pay for. Risk is the price of reward, with risk being defined as deviation from expected return. You nearly never get a reward without bearing some risk to attain said reward. On the flip side, you should always demand a commensurate reward for the risk that you take. Measuring reward without taking into consideration the risk paid to attain such reward is akin to jumping out of the top floor of a 50 story building to revel in the exhilaration of the drop without taking into consideration what happens when you reach ground level. All in all, it tends to end ugly.

My clients are told that if you assumed $1 of risk to reap $1 of reward, then you effectively made nothing from an economic, risk adjusted reward perspective. This is difficult for the layperson to understand since those who reaped said dollar are left holding one dollar of nominal returns which looks, smells and spends like a dollar. They don't seem to get it until that third or fourth go around when they get 30 cents back for the dollar they invested (versus an amount over a dollar, hence a negative return). You see, probabilistically, you can reap more than you sow over the short term simply out of dumb luck. Realistically, the law of averages will catch up to you and eventually (and most likely close to immediately) you will reap what you sow, or... you get what you pay for!

Similarly, if bitcoin investors/traders believed they are doing well when bitcoin jumps from $13 to $950, they may be mistaken. The reason? Bitcoin has a modified beta of roughly 673! That means that it is volatile. Very volatile! More volatile than practically any basket of currencies or stocks you can think of. This volatility means that in a short period of time it's just as easy to be on the losing side of the trade of this asset as it is to be on the winning side. So, you're lucky if you bought at $500 and rode it to $950, but you could have just as easily bought at $1,200 and rode it down to $500.

With these concepts in mind, you should always adjust for risk before attempting to measure reward. By doing that you will find that you can compare disparate assets, ventures and opportunities that have different reward propositions and even different horizons by measuring the risk (or the economic cost) of the investments and then adjusting the actual or expected reward desired to compensate for said risk commensurately.

Notice how, if one were to take this approach, one can see the different risk adjusted returns between the top two cryptocurrencies by market value. Bitcoin is the most popular, but Litecoin is the most profitable - even when fully adjusted for risk.

The UltraCoin team has run these calculations, among many other currencies, on every cryptocurrency with a market value over $1 million. In addition, these currencies have been aggregated to form what we have coined as the "UltraCoin Cryptocurrency Composite Index" - a basket of cryptocurrencies upon which our custom UltraCoin derivatives can trade, hedge, invest and speculate.

These indices and calculations (not to mention a bevy of other calculations to assist in trading) are part and parcel of the UltraCoin client.

The graph below depicts the outrageous raw returns had by holders of bitcoin. It also denotes the extreme volatility experienced therein, particularly from late 2013 onward.If one were to place a hurdle rate of required return to compensate for said volatility, the return curve will look somewhat different.

As you can see, all that glitters is not necessarily gold! I will be pushing for the beta release of the UltraCoin client quite soon, quite possibly at the Berlin Bicoin conference. In the meantime, for those of you who have not had a chance to play with the software, here are a few screen shots.

Google reported Thursday later afternoon and the early morning traders didn't know what to make of the numbers - with the stock gyrating up and down. The following day, CNBC's 2nd annual stock draft stock picking contest ended. Guess what happened? For the impatient, I can put the video here...

This is a very educational show put on by Kim Greenhouse of "It's Rainmaking Time". She is one of the very few who eschew the soundbite driven media economy and chooses the long format, deep dive approach. While it may be too long for ADD crowd, it digs deep into a not so simple subject to foster understanding and comprehension. This was a pretty good show with an interesting cast of guests:

RootEleven founder, visionary, and Bitcoin programmer Andreas Antonopolous, who will explain why Bitcoin is like "the internet for money".

Bitcoin trader and programmer Dave Scotese will provide deep thinking about what makes Bitcoin so important, and why the public should be involved in its development.

Sam Guzik, one of the most sophisticated and knowledgeable SEC lawyers regarding crowdfunding and investment, will cut through the hype, misinformation, and wrong perceptions surrounding equity crowdfunding to highlight current SEC conditions and real opportunities in the crowdfunding arena.

This show is over an hour and a half long and I don't want the contet to be avoided simply because of its length, so I have included a hyperlinked menu below to assist in navigating to the topcis of your individual interests.

Bloomberg reports Royal Bank of Scotland Group Plc, Britain’s biggest government-owned lender, is on track for its largest pretax loss since 2008 after setting aside 3.1 billion pounds more ($5.1 billion) for legal and compensation claims. We will delve into this report in detail, but first a little background so we're all viewing 20/20.

I've been spending a lot of time rebuilding the banking system as software over a cryptocurrency framework. Basically, I'm building a more efficient, more "Trustworthy" financial system. Many are doubtful of these endeavors. I say, don't underestimate the effort. For one, a more efficient, more trustworthy system is sorely needed. Here we are, 7 years after the start of the great financial trainwreck that I'm known for predicting, and I'm still at it doing the same thing to the same industry. This is only possible when there's a structural problem in the industry. A problem that rapid advancements in technology are ripe to solve.

On Thursday, 11 April 2013 I penned, I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets! wherein I clearly illustrated that RBS is materially understating its liabilities AND even went so far as to include links to the SEC and the UK banking regulator so that US/UK taxpayers and investors can notify our erstwhile regulator(s) to the potential of financial shenanigans. The root of the problem is that RBS has materially under-reported its liabilities (in my oh so humble opinion.) Those that stress tested RBS (the same erstwhile professionals that allowed the Irish banks to pass their stress tests 3 months before they started collapsing) apparently overlooked humongous swaths of liabilities.

The amount of evidence that I produced to back my claims was prodigous...

What happened behind closed doors?

Ulster Bank gave a first floating charge in favor of the Central Bank of Ireland (an arm of the European Central Bank) and the Financial Services Authority of Ireland. U.S. investors would have had to rely on the contents of The Royal Bank of Scotland's 2008 Annual Accounts which apparently (in my opinion) concealed the existence of the CRO registered charges to the Bank of Ireland.

The provision includes 1.9 billion pounds for lawsuits and fines tied mostly to the sale of $91 billion of mortgage-backed securities from 2005 to 2007, the lender said yesterday. It follows agreements Deutsche Bank AG, JPMorgan Chase & Co. and UBS AG (UBSN) struck with U.S. regulators to settle claims they didn’t provide adequate disclosure about mortgage-backed debt sold in the housing bubble that preceded the 2008 financial crisis.

Are they referring to claims similar to the ones I made that RBS bought Ulster Bank full of unrecognized mortgage crap, levered up off it and hid the debt? I strongly suggest my readers brush up on how The Irish Banking Cancer Spreads to the UK.

More than five years after giving RBS the biggest bank bailout in history, the government still hasn’t been able to cut its 80 percent stake.

... “When the crisis broke, the bank was involved in a number of different businesses in multiple countries that have subsequently faced heavy scrutiny by customers and regulators,” McEwan, 56, said in yesterday’s statement. “The scale of the bad decisions during that period means that some problems are still just emerging.”

... The charges led the bank to cut its forecast for its core Tier 1 capital ratio, a measure of financial strength. RBS expects the ratio will be about 11 percent at the end of 2013, or as much as 8.5 percent under the latest rules set by the Basel Committee on Banking Supervision. That’s down from the company’s estimate of 11.6 percent and 9.1 percent in November.

“Fronting up to our past mistakes is very expensive, but RBS is a much stronger bank that can deal with these costs on its own while running a good capital position,” McEwan said on the call. “Dealing with these litigation and conduct issues is essential if we are to move the bank forward.”

Well, I still haven't noticed them come clean on the Ulster Bank charge issue. If they really are going to "Front[ing] up... past mistakes" then they really need to address this, no? If the Ulster Bank charges are included in the Basel capitalization guidelines, then RBS needs a bailout, and needs one Now! It doesn't end their though. On Monday, 20 May 2013 I queried Who is RBS? Royal BS... or the Royal Bank of Scotland, to wit:

"An independent Scotland would have an exceptionally large banking sector compared to the size of its economy - with banking assets of more than 1250 percent of Scottish [gross domestic product] - making it more vulnerable to financial shocks and the volatility of the sector," the Treasury report said on Monday.

The report pointed out Scotland's banking exposure would dwarf that of Iceland and Cyprus, two countries that faced severe banking collapses in recent years. Iceland's banks, for example, had assets equivalent to 880 per cent of GDP, while Cyprus, which faced a banking crisis in March, had total banking assets of around 700 per cent of GDP.

"At the end of September 2012, the two largest banks – the Cyprus Popular Bank and Bank of Cyprus – had assets in the region of 210 per cent and 175 per cent of Cyprus's GDP respectively."

"It is worth noting that, if Scotland became independent, its banking sector would be similarly concentrated (with two large players, Bank of Scotland and Royal Bank of Scotland and a number of smaller firms), and that an independent Scotland's domestic banking sector would be likely to be significantly larger than that of Cyprus (assuming no change to firms' domicile arrangements)."

I penned, I Illustrate How The Irish Banking Cancer Spreads To The UK Taxpayer And Metastasizes Through US Markets! wherein I clearly illustrated that RBS is materially understating its liabilities AND even went so far as to include links to the SEC and the UK banking regulator so that US/UK taxpayers and investors can notify our erstwhile regulator(s) to the potential of financial shenanigans. The root of the problem is that RBS has materially under-reported its liabilities (in my oh so humble opinion.) Those that stress tested RBS (the same erstwhile professionals that allowed the Irish banks to pass their stress tests 3 months before they started collapsing) apparently overlooked humongous swaths of liabilities. The charge documents referred to in the aforelinked article are definitively not apparent in the recent bank stress testing’ conducted by the European Banking Authority, at least not in the summary results that the EBA have made available. For those who are still skeptical, I beg thee reference the RBS Stress Test download.

To think, there are actually many who query as to why I seek to make a more efficient financial system...

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With the latest advances in technology, I can literally replace large swaths of bank functions with software. Software that doesn't lie, cheat, steal, or screw you for a bonus! Zero Trust software...

If the RBS/Ulster Bank mortgage-backed secutities would have been traded through UltraCoin, rehyppthecation, double-spending, over-leverage, and thrice pledged assets would have been a thing of the past. These contracts are overollateralized (200%) and use no leverage, yet still hold the promise of significant return, not to mention a mere fraction of the cost of the big bank stuff. Will the dawn of this technology herald the end of fractional reserve banking as we know it?

Let it be known, Wall Street banks' profit margin IS my business model!!!

My Twitter followers know that I attended the North American Bitcoin Conference in S. Beach Miami last weekend. Here are some keepsakes from the visit as well as a video answer to the new media pop financial pundit, Peter Schiff's assetion that Bitcoin has no intrinsic value.

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The proprietors of a Bitcoin ATM, due to appear in the states next month.

A few days ago I was waxing poetic over the abilty of David Z. Morris' ability to grasp rather complex, intangible concepts and loquaciously lay them forth in the written word via the pages of Fortune magazine. After all, what creative destruction advocate wouldn't get all mushy after reading "Reggie Middleton, currently building a client called BTC Swap. Middleton, gravelly voiced, dapper, and businesslike, doesn't fit the stereotype of woolly young bitcoin developers. But he slyly describes himself as "not quite an anarchist," and BTC Swap is a shot directly across the bow of the financial industry"...

Or "Middleton sounds a bit like an 18th-century pirate striking back against the Empire when he declares that "what I'm doing right now is a direct threat to fiat merchant banking." For him, excitement over value fluctuations in the bitcoin currency is missing the point: "It's not a threat as people sit there and ponder whether bitcoin is a bubble or not. But if people go through the protocol and use their imagination, the existing system is threatened.""

FORTUNE -- Carl Icahn, the billionaire activist investor, has been interested in technology lately. Wednesday, he made several TV appearances to reiterate his call for tech giant Apple (AAPL) to engage in a massive $150 billion share buyback. As usual, he demonstrated that he was willing to put his money where his mouth was, revealing that he had upped his stake in the company by $500 million to $3 billion, causing Apple's stock to jump 1%.

Then, after the bell, eBay (EBAY) revealed that Icahn had built up a stake in the online auction retailer and was pushing for some radical changes. But in this case, though, Icahn wasn't interested in buybacks -- he was looking for a breakup. Ebay said Icahn wanted the company to spin off its online payment arm, Paypal, and had requested two seats on eBay's board. eBay rejected both of Mr. Icahn's proposals.

... Paypal has grown from its roots as a small payment processor helping buyers and sellers of Beanie Babies feel safe to do business on eBay, to a full-on payment alternative for thousands of merchants with millions of members. Its advantage in many cases is simply speed and convenience -- how many times have you clicked the Paypal button while checking out of an e-commerce store just because you didn't want to get off the couch to grab your credit card?

Does the author mean like this?

...eBay is also lagging when it comes to valuation. The company as a whole trades on a multiple of nine times next year's enterprise value divided by earnings (or ev/ebitida), which measures a company's return on investment. Meanwhile, the payment operators, like Visa and Mastercard (MA), trade roughly at 15 to 17 times next year's ev/ebitda, or around 40% higher than eBay. E-commerce sites also trump eBay's numbers with Amazon trading at around 33 times next year's ev/ebitida and Groupon (GRPN) trading at around 17 times.

But Visa and Mastercard are about to face the same double whammy that PayPal is staying at. Let me show you with video...

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or pretty pictures...

You see, the payment processors are very soon to be subject to...

Why? Because P2P solutions such as UltraCoin easily allow for such, and at dramatically lower prices to boot...

If we were to look at this graphically, it would be comical to compare...

On the commercial macro payments side...

So, what happens when your competitors offer a competitive product for between 1/1000th and 1/3rd the price?

Now, back to the Fortune article and the apparent strawman argument...

... As a part of eBay, Paypal is run by people who know tech and know retail, not by people who necessarily know payment networks. As such, Paypal's growth beyond the web may not be as successful as it could be if it was led by people who worked at a credit card company like American Express (AXP) or a global payment provider like First Data Resources.

Again this seems to ignore the coming wave, alas... I digress...

... eBay's aggressive international expansion is helping to grow PayPal's global presence, especially in countries like Brazil and Russia, where eBay is taking off. If the cord is cut too early the fear is that PayPal's international growth may stall.

Stall or stagnate?

As my readers recall, I've developed a cross currency swap system that allows holders of BTC to dance around two dozen or so sovereign fiat currencies with ease. Combine this with dramatically lower costs and ease of transmission and I see either a material change in business model or... Margin Compression!!!

This really makes one think... Is eBay a short play in and of itself? I know Carl Icahn would likely get a large bang for his investment buck backing UltraCoin than he would calling for a PayPal spinoff. Then again, what do I know? Those who wish to discuss the merits of an UltraCoin investment by Icahn can feel free to ping me at reggie at ultra-coin.com.

]]>reggie@boombustblog.com (Reggie Middleton)BoomBustBlogFri, 24 Jan 2014 08:36:46 +0000Enter UltraCoin: It Is To Banks As Peer-to-Peer File Sharing Is To The Music Industryhttp://boombustblog.com/blog/item/9194-enter-ultracoin-it-is-to-banks-what-as-peer-to-peer-file-sharing-is-to-the-music-industry
http://boombustblog.com/blog/item/9194-enter-ultracoin-it-is-to-banks-what-as-peer-to-peer-file-sharing-is-to-the-music-industry

I'm rapidly unveiling what's been brewing in the BoomBust labs over the last few months - UltraCoin an intelligent derivative layer of smart financial contracts that sit on top of the Bitcoin architecture. In short, the recreation of the banking industry in software - without the trust and counterparty risk issues!

For those of you who are still skeptical re: cryptocurrencies, I please read the most excellent article by David Z. Morris, which also happens to grace the front page of Fortune magazine today.

I'll excerpt some choice snippets:

Some still doubt bitcoin's usefulness and durability, but 2014 may leave skeptics even further behind -- developers and entrepreneurs are already hard at work building features on top of the Bitcoin protocol that will allow for the decentralized execution of financial services, from currency hedging to loans to stock issuance to rental and purchase contracts...

In the long term, peer-to-peer finance threatens to weaken banks and other financial agents just as peer-to-peer file sharing did the music industry -- and some of the architects of this financial Napster seem gleeful about the possibility.

Ya damn skippy!!!

That means loans without banks, contracts without lawyers, and stocks without brokers, executed and recorded across hundreds of servers at all corners of the earth.

__________________

Independent entrepreneurs are also working to build this infrastructure. One of these is Reggie Middleton, currently building a client called BTC Swap.

This will be marketed as UltraCoin! Wasn't completely ready for the interview, but will be shown live at the North American Bitcoin Conference in Miami Beach this weekend!

Middleton, gravelly voiced, dapper, and businesslike, doesn't fit the stereotype of woolly young bitcoin developers. But he slyly describes himself as "not quite an anarchist," and BTC Swap is a shot directly across the bow of the financial industry.

Believe it!

Still in early development, BTC Swap is planned to facilitate a variety of what Middleton calls "Zero-Trust Digital Contracts," which recreate financial functions in software code by matching offered and desired transactions between parties without the need for intermediary institutions. Because these contracts are automated, instantaneous, and executed with assets already represented in the Bitcoin blockchain, Middleton says they eliminate counterparty risk while also subtracting conventional banking and brokerage fees.

David was correct in that it was in early development when he saw it, but we've been busting our collective asses (analysts, financial engineers, software engineers, programmers, website designers, the whole crew) and we'll not only be demonstrating live but will be trading risk down in Miami, right in front of your eyes!

The most immediate function Middleton envisions for his system is for hedging bitcoin against existing national currencies. With bitcoin's valuation still showing huge volatility, Middleton claims the availability of distributed hedging will both ensure the value of bitcoin for individuals holding the asset and provide systemic stability. (Given persistent skepticism, there should be plenty of takers to short bitcoin against the dollar.) And the entire system relies on decentralization for its security and integrity: "My contracts are peer-to-peer," says Middleton. "If you hack my servers, there's nothing to get." Somebody call Target (TGT).

Somebody? Anybody? Target, drop me a line at reggie.middleton at ultra-coin.com if you want my assistance in getting in on this distributed, peer-to-peer bitcoin thingy. My next post will show how my UltraCoins can add 15% to Overstock.com's bottom line. That's pretty damn good if you ask me! As a matter of fact, it's pretty damn good even if you didn't ask me :-)

Such hedging functions have particularly unique promise because of the extremely low transaction costs of peer-to-peer currency. Bitcoin makes microtransactions ranging down to fractions of a cent viable, but Middleton says that "right now, if you do micropayments, the volatility of bitcoin can really take you out." Because of the low cost of Middleton's swaps, "I can let [payees] manage risk and decrease volatility at the micro-level."

Please pardon me for the heavy excerpts taken from this article, but it is really... just.. that.. good!!! And it gets even better. Check it out:

The functions that advocates say could be automated through the Bitcoin network seem nearly endless, including peer-to-peer investment funds, Kickstarter-like crowdfunding, binding arbitrations, and even non-financial transactions such as naming rights management and encrypted communication.

I actually have much of this stuff oven already. All I need is the funds to help accelerate development becuase "you know who" is likely to get their bonus pool panties in a bunch and start coming after me :-)

And all could be executed without a cut for intermediaries. Bitcoin partisans, from developers down to rank-and-file users, often seem to revel in the idea that they are threatening the control and profits of Wall Street institutions, who they see as rent-seeking fat cats. If it were limited to the loss of fees on payments and transfers, bitcoin's threat to existing financial institutions would still be substantial. But with a full array of commission-free financial services on the horizon, there is even more reason to take heed.

Oh, and I love this part...

Middleton sounds a bit like an 18th-century pirate striking back against the Empire when he declares that "what I'm doing right now is a direct threat to fiat merchant banking." For him, excitement over value fluctuations in the bitcoin currency is missing the point: "It's not a threat as people sit there and ponder whether bitcoin is a bubble or not. But if people go through the protocol and use their imagination, the existing system is threatened."

And here comes the rain on the parade :-(

However, there is a substantial obstacle to this coming revolution. Despite the emergence in 2013 of entities like Coinbase that have drastically streamlined the process, it is still difficult to exchange bitcoin for national currencies in a quick, reliable manner. It's unclear how Middleton's automated dollar-bitcoin hedging will work without a lightning-quick and reliable dollar-bitcoin exchange platform.

UltraCoin was in early beta stage when David saw it. It'll be ready to strut much of its stuff in Miami, making things much clearer.

So, the true "automation" of bitcoin functions that integrate with the economy as a whole may require a reconciliation with existing trading platforms.

As should be obvious to many, I'm quite serious about recreating today's financial system. I'd like to introduce what some in the media have coined (no pun intended) Bitcoin 2.0 (which is actually just the true implementation of bitcoin), otherwise known as UtlraCoin. UltraCoin is the derivative layer that we're writing on top of Bitcoin to enable Bitcoin holders, buyers and sellers to do some pretty amazing things.

Here's the latest Max Keiser in which he and Stacey Herbert to a good job of explaining what I have in mind. Of course, I get to speak my mind in the second half of the show.

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I am pushing very hard to have the Zero Trust Currency Contracts, the first implementation of UltraCoin, to go into open public beta by the end of next week. That means you will be able to short, leverage, go long and arbitrage BTC. The strategies I and my analysts and developers have come up with will blow... your... mind! Here's a screen shot of the early beta trading desk:

Brand spanking new research is available to all paying subscibers, with a super bonus to my professional and institutional subscribers. To excerpt from said pages...

The professional and institutional versions of this report contain over 30 pages of data and analysis. These trades are for big boys (and girls), or at least those who can think like big boys (and girls). It is my intent to have traders, investors, companies and speculators use our Zero Trust Digital Contracts often, and knowledge of opportunities such as these do a lot to foster such use. Click here to subscribe.